It's largely inferred that a 20% down payment is accepted when buying a house. Considering the liability for the lender is often only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and natural value changesin the event a purchaser doesn't pay.

The market was working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added policy takes care of the lender if a borrower defaults on the loan and the market price of the home is less than what is owed on the loan.

Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible, PMI can be pricey to a borrower. It's favorable for the lender because they collect the money, and they get paid if the borrower doesn't pay, unlike a piggyback loan where the lender absorbs all the costs.

Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.

How can a home owner prevent bearing the cost of PMI?

The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Keen home owners can get off the hook ahead of time. The law stipulates that, upon request of the home owner, the PMI must be released when the principal amount equals only 80 percent.

It can take many years to reach the point where the principal is only 20% of the original amount borrowed, so it's crucial to know how your home has appreciated in value. After all, every bit of appreciation you've accomplished over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Despite the fact that nationwide trends indicate falling home values, understand that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home could have gained equity before things calmed down.

The difficult thing for many home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Central Arizona Appraisers, we know when property values have risen or declined. We're experts at identifying value trends in Phoenix, Maricopa County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually do away with the PMI with little effort. At that time, the home owner can enjoy the savings from that point on.